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What is Obamacare? Part VI: Winners and Losers

As the technical issues with Healthcare.gov continue to pile up, questions about the laws efficacy are inevitably following. Some of these criticisms are primarily ideological, others are baseless, and some seem to stem from Obamacare’s namesake. However, at the end of the day, Obamacare is definitely good for some and definitely bad for others. In any law this big, there’s trade-offs, and the Affordable Care Act is no different. The law clearly includes policy that trades the financial comfort of some for others.

But who’s who in this debate? Who’s going to end up ahead and who’s losing out? Here’s a quick recap of our “What is Obamacare?” series and a look at who stands to benefit the most from the law as well as those who may be out of luck. Obviously, this is purely speculative. The law of unintended consequences is in effect, and no one can be completely sure how things will actually play out. But one can still make some basic projections based on the way the law was written.

Winners: People with preexisting conditions, the middle-aged, people with high medial costs

If anyone’s going to benefit, it’s those members of the population who were previously uninsurable. In fact, one could argue that the law was specifically intended to allow the 30 million or so uninsured people in the United States to get the coverage they need. Basically, all of the people insurance companies used to find too expensive to insure are now guaranteed access to coverage. So people with preexisting coverage, or those people old enough to have high medical costs but not old enough to qualify for Medicare, are going to have access to plans that desperately need.

Losers: Young invincibles

President Obama may have ridden a massive turnout from the youth vote to his two victories, but his signature legislative accomplishment could really stick it to them. Essentially, someone has to pay for all of these pricey, losing bets the insurance company is taking on in the form of the winners listed above. And while part of that someone will be all of us in the form of federal subsidies, another someone will be young, healthy people. The new age bands limit the difference between premiums for the youngest and oldest people, and insurance companies are probably going to be forced to hike up premiums for their youngest customers as a result. What’s more, while it may have made some financial sense to risk not having insurance in the past (depending on your perspective), new tax penalties mean that even the healthiest people will have to either pay for insurance or take a hit on their taxes. And finally, new rules about how much coverage a plan must have will eliminate the option for plans with rock-bottom premiums and sky-high deductibles that previously made a lot of sense for the youngest, healthiest people seeking health insurance.

In the end, those young people who aren’t on their parents plan anymore are probably going to see fairly substantial increases in their premiums.

MAJOR Losers: People falling into the Medicaid gap

One consequence of the Supreme Court ruling that the Federal Government couldn’t force states to accept the Medicaid expansion was the creation of a rather critical gap some of the citizens of the 26 states that are refusing to participate. While the law extends subsidies down to anyone earning the poverty level in those states (in those states participating in the expansion, people earnings 133 percent of the federal poverty or lower will be Medicaid eligible), they aren’t available to anyone earning less than the federal poverty. Medicaid eligibility varies from state to state, but in many places some adults making less than the federal poverty level (about $12,000 a year) will not be able to get subsidies to get coverage, won’t be eligible for Medicaid, and will still owe a tax penalty for failing to get insurance. Ouch.

This is actually a really small portion of companies, 95 percent of those that would trigger the employer mandate already offer their full-time employees coverage. However, for those companies that don’t, it’s decision time. They could opt to pay the penalty (though that’s probably too expensive for most), potentially shift hours to reduce the number of full-time workers to 30 or less, or fire enough people that they don’t trigger the mandate anymore. However, the options that the authors of the law are hoping/expecting most companies to take is to break down and shell out for a plan for their full-time employees.

Again, while it’s a relatively small group of companies that will be affected by this, it is very significant for some. In particular, a lot of chain restaurants that have previously depended on low labor costs in the form of low-wage wait staff and cooks may see a big difference in the way they do business. That’s part of why so many of the most public critics have been from the restaurant and food industry, like Papa John’s (PZZA) CEO John H. Schnatter.

Winners: Large Businesses with many part-time employees

The employer mandate doesn’t penalize large businesses for failing to offer coverage to part-time employees. So, for those companies with many, like Wal-Mart (WMT) , part-time employees will now have access to health plans and subsidies through the exchanges. This should, hypothetically, translate to a healthier workforce and eased pressure to insure these workers at no extra cost to the employer.

For firms that don’t qualify for the employer mandate, the law only provides more options. For starters, the opening of the small business exchanges in late 2014 (the SHOP exchanges) will make selecting plans easier. And by creating larger risk pools, firms can now offer employee-choice style plans that include multiple carriers that previously weren’t an option. Small businesses will also have more flexibility to not offer coverage as well. With employees having more options on their own due to the exchanges and subsidies, the decision by a small firm not to offer coverage won’t necessarily leave its workers high and dry anymore. Finally, very small businesses with low wages could qualify for a tax credit to help pay for coverage.

Losers: Small businesses just under or just over 50 full-time employees

Growing businesses need to plan ahead, and flexibility can be key. Unfortunately, the creation of the employer mandate draws a pretty clear line in the sand that could make things difficult for those businesses that are right on the line. The need for adequate legal and tax advice could create new costs, and decisions about hiring could include pretty dramatic changes to health care costs that didn’t previously exist. On the whole, companies that are well over or well under this threshold will most likely have pretty simple choices to make, but those right near the line may struggle to find the right approach.

One major effect of the law is most likely going to be a narrowing of offerings from health insurance companies. With limits to how much cost-sharing can be included and services that are required to be covered, insurance companies will have a lot less latitude in writing plans.

But is that good or bad for consumers? It’s not entirely clear, at this point. On the one hand, consumers can be confident that any plan they buy will cover a raft of basic medical care. Every plan will have a clear limit to their annual out-of-pocket costs, and they won’t see the same sky-high deductibles that used to be out there. On the whole, every plan they’ll be able to look at will be of higher quality. And, what’s more, the metal tiers will make shopping for plans more uniform and easier to understand.

However, along with this comes fewer options. Opting to accept the risk of high out-of-pocket costs in exchange for lower premiums is off the table, for the most part. As is grabbing a cut-rate plan. And one result of the new limits on what they can do with their plans is leading to some insurance companies to limit the size of provider networks. In the end, the changes to the way plans are structured have both positive and negative effects for the consumers buying them.

When the debate over the law eliminated a single-payer system and the public option, it was a clear endorsement, on some level, of the health insurers. Federal and state governments have spent millions setting up massive shopping exchanges where citizens are directed to their products, billions of dollars in subsidies will be flowing from the federal government to these companies, and a tax penalty is incurred by anyone who chooses not to purchase their product. Insurance companies have basically been handed 20 million new customers and have help from the federal government to recruit and pay for them.

Losers: Insurance companies

However, for all the new benefits, there’s plenty of issues that the new law creates. The limits to the way companies can structure their plans are detailed above, and guaranteed issue essentially means that insurers will be forced to take on customers they know they’ll lose money on. What’s more, there’s several new taxes levied against insurers to help pay for the subsidies and other portions of the law. And finally, their profit margins are limited by law. They must spend 80 percent of individual and small business premiums, and 85 percent of large group premiums, on medical costs or issue refunds to customers that make up the difference.

However, the big unanswered question remains: who will sign up? The entire plan rests on the creation of a massive risk pool that will attract enough young, healthy people to balance out the inevitable flow of the older, sick people. Should the exchanges fail to attract enough young invicibles, the entire plan will result in sky-rocketing premiums on the individual markets that would be unsustainable, what some refer to as a “death spiral.” In this case, the insurance companies are likely to suffer through most of the negative consequences of the law without seeing many of its benefits.

That is Obamacare?

So, thus concludes our What is Obamacare? series. While anything but comprehensive, it should provide a fairly broad overview of the different segments affected by the new law and what they can expect moving forward.

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